If you have saved some money this year, it is a good idea to invest it in the stock market. Instead of focusing on growth stocksYou can focus your attention on dividend stocks since they can generate a paycheck for you every quarter. Dividends act as a great source of passive income that can help you supplement your earned income. There is nothing more satisfying than sitting back, relaxing, and watching your dividends flow into your bank account.
However, you need to select the right types of dividend-paying stocks to include in your investment portfolio. These companies should have a strong brand and a solid competitive advantage, have a history of generating large amounts of free cash flow, and possess characteristics that will allow them to continue to perform well in the future.
Equipped with these attributes, these stocks should allow you to enjoy a good night's sleep while also increasing their dividends over time to fatten your bank account and beat inflation. Below are three attractive dividend stocks that you may want to consider buying if you have $5,000 to spare.
Mondelez International
Mondelez International (NASDAQ: MDLZ) is a snack food company that generated $36 billion in sales in 2023 and is present in more than 150 countries worldwide. The company owns famous brands such as Oreo, Ritz, Milka and Cadbury and occupies the number one position in the biscuit and chocolate markets in several countries.
Mondelez demonstrated consistent growth in both revenue and net earnings from 2021 to 2023. Net revenue increased from $28.7 billion to $36 billion, while net earnings increased from $4.3 billion to $4.96 billion over the same period.
It is important to note that Mondelez generated an average positive free cash flow of $3.3 billion over the three years. This consistent generation of free cash flow allowed the snack giant to increase its dividend without fail for more than 20 years. The latest quarterly dividend stood at $0.47 per share, up 10.6% from the previous year, compared to $0.425 a year ago.
Mondelez continued to impress in the first half of 2024. While revenue was flat year-over-year at $17.6 billion, operating profit increased 22.2% to $3.6 billion as the operating margin improved from 16.6% to 20.3%. Net profit, after adjusting for extraordinary gains and losses, increased 37.4% to $2.7 billion. The business continued to generate healthy positive free cash flow of $1.5 billion during the first half of this year.
Dividend growth could be higher. Mondelez’s fifth State of Snacking report, released in March 2024, showed that global consumers continued to prioritize snacking. Two-thirds of consumers have not made significant changes to their snack spending despite being more price-conscious. Encouragingly, 6 in 10 consumers use social media to search for novelty and are willing to try new snacks. These findings are advantageous for Mondelez as the company works to innovate with new snacks and slowly increase prices to offset the effects of inflation.
Management plans to continue its strategic growth initiatives, including reinvesting in brands such as Oreo, expanding its distribution outlets in the US, and boosting M&A activity in Europe. Mondelez’s strategic partnership with Lotus Biscoff could help drive chocolate growth in Europe while also expanding its biscuit business in India. These initiatives bode well for the future of the business and investors can expect continued dividend increases if this momentum continues.
Visa
Visa (NYSE: V) is a payments giant and market leader in the industry with 4.5 billion debit and credit cards issued as of March 31.
The company has consistently grown both its revenue and net profit over the years, while generating strong free cash flow. Revenue rose from $24.1 billion in fiscal 2021 (ending September 30) to $32.7 billion in fiscal 2023. Net profit soared from $12.3 billion to $17.3 billion over the same period. Visa’s free cash flow generation has also improved over these three years, rising from $14.5 billion to $19.7 billion.
This track record of growing profits and free cash flow has allowed the payments giant to increase its dividend every year since the company went public in 2008. Back then, the quarterly dividend was just $0.0263 per share, but it has now grown to $0.52 per share – an increase of almost 20-fold. On a compound annual growth rate basis, Visa’s dividend has increased by about 20.5% per year for 16 years – a truly impressive feat.
Visa’s strong performance has continued into the first nine months of fiscal 2024. Revenue increased 9.4% year-over-year to $26.3 billion. Both operating and net income posted healthy increases of 11.6% and 14.6%, respectively, to $17.2 billion and $14.4 billion. The company continued to generate positive free cash flow of $12.3 billion, cementing it as a solid dividend payer that can continue to grow its payouts.
The good news is that Visa continues to explore different ways to grow its business through collaborations and the launch of new services. In June, Visa partnered with Amazon Expand payment options for Amazon customers and provide them with payment plans that can convert their purchases into smaller, fixed payments over a selected period.
A month later, Visa collaborated with HSBC Bank to develop the Zing International Money app, which allows members to hold funds in 10 different currencies and send money in over 30 countries while transacting in over 200 countries worldwide. In the small business sector, Visa relaunched its SavingsEdge service in the U.S. and Canada to support smarter spending and saving for small business owners and card issuers.
These initiatives should go a long way towards ensuring customer loyalty and opening up more revenue streams for the payments player, allowing it to continue to increase its presence and market share for many years to come.
Starbucks
With more than 38,000 stores worldwide, the Starbucks (NASDAQ: SBUX) The coffee chain is known worldwide and has demonstrated a pattern of generating consistent free cash flow, although its net income growth has stagnated in recent years.
Total revenue rose from $29.1 billion in fiscal 2021 (ending Sept. 30) to $36.0 billion in 2023. However, net income remained flat at around $4.1 billion over the same period. Starbucks managed to generate an average positive free cash flow of $3.6 billion between fiscal 2021 and 2023, despite spending heavily on store openings.
Thanks to the company's reliable free cash flow generation, it has been able to increase its quarterly dividend for 13 consecutive years at an average of 20% per year. Starbucks started its quarterly dividend at $0.05 in fiscal 2010 and has since grown to $0.57 in the most recent fiscal quarter.
The coffee chain reported a solid set of results for the first nine months of fiscal 2024. Total revenue rose 1.9% year-over-year to $27.1 billion, but operating profit fell 1.5% year-over-year to $4.1 billion. Net income fell 1.8% year-over-year to $2.9 billion. Starbucks continues to report a slight 6.2% year-over-year increase in free cash flow to $2.6 billion, giving investors confidence that it can consistently increase its dividend.
In a surprise move, the board of directors named Brian Niccol as Starbucks' new president and CEO. Niccol, who used to be the CEO of Chipotle Mexican GrillNiccol will replace current CEO Laxman Narasimhan. During his tenure from 2018 to 2024, the Mexican restaurant chain saw its revenue nearly double, while net profit soared nearly 7-fold. Niccol wrote an open letter to Starbucks stakeholders and customers stating that the company needs to get back to basics and focus on what sets it apart from other coffee chains.
His initial plan is to ensure that baristas have the ability to serve customers and take orders in a timely manner. Stores will also be renovated to make them pleasant places where customers can linger and enjoy the experience. His appointment is a promising development for Starbucks and should transform the coffee chain in a positive way in the coming months. Steady earnings and dividend growth should continue once the benefits of the transformation begin to flow.
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Royston Yang has positions in Starbucks and Visa. The Motley Fool has positions in and recommends Starbucks and Visa. The Motley Fool has a Disclosure Policy.
The Smartest Dividend Stocks to Buy with $5,000 Right Now Originally published by The Motley Fool
